Question

A new machine cost $57,000. The machine will be depreciated on a straight-line basis over 5 years to a salvage value of $2,000. The machine will be sold 4 years from now for $24,000. If the tax rate is 24%, what is the after-tax gain on the sale of the machine? Round your answer to the nearest dollar.

Answer 1

Cost of machine = $57000

Salvage value = $200

life = 5 years

The machine will be depreciated on a straight-line basis over 5 years to a salvage value of $2,000.

So, depreciation per year = (cost - salvage value)/life = (57000 - 2000)/5 = $11000

So, Book value of machine after 4 years = cost - depreciation rate*years = 57000 - 11000*4 = $13000

Machine was sold at $24000

So, a profit = selling price - book value = 24000 - 13000 = $11000

tax rate T = 24%

So, tax on profit = 24% of 11000 = $2640

So, after-tax gain on the sale of the machine = profit - tax = 11000 - 2640 = $8360